Partner Susan Schroeder authored the article “Predicting Regulation Best Interest Enforcement Priorities” in The Review of Securities & Commodities Regulation Vol. 53 No. 20. Ms. Schroeder is the former head of enforcement at the Financial Industry Regulatory Authority (FINRA). 

Excerpt: The impact of Regulation Best Interest (“Regulation BI”), newly in effect for registered broker-dealers as of June 30, 2020, is difficult to overstate. When it was announced, industry leaders noted that “compliance with the rule will not be easy for the industry,” and would require substantive changes and impose significant costs. The Securities and Exchange Commission declined to extend the implementation date despite the Covid-19 pandemic, underscoring the SEC’s sense of urgency and its expectation that Regulation BI will “significantly benefit Main Street investors.” Accordingly, Regulation BI has required broker-dealers to implement substantial changes across their businesses to comply with their new obligations.

But in some ways, compliance with Regulation BI is not new. Aspects of Regulation BI build on pre-existing obligations imposed by Financial Industry Regulatory Authority Rule 2111, the “suitability” rule. FINRA, a self-regulatory organization authorized by the federal government to oversee broker-dealers, promulgates conduct rules for its member firms and their associated persons. It enforces its rules, as well as certain federal securities regulations, in disciplinary actions that may result from negotiated settlements or may be adjudicated in a FINRA proceeding. Appeals from FINRA’s final decisions are decided by the SEC.

Read the full article.